With the expansion of Vacant Residential Land Tax (VRLT) for calendar year 2024, the Holiday Home exemption will be relevant for many owners of residential properties in seasonal and holiday locations around Victoria.
Our general overview of VRLT is here. As a reminder, a property found to be “vacant” during a calendar year is charged with an additional tax of 1% of Capital Improved Value, unless an exemption applies.
Here we will outline the Holiday Home exemption.
How many days must the property be used as a holiday house?
- At least 28 days during a calendar year
- Does not need to be a continuous 28 days
What are the criteria for an individual landowner?
You can only have one holiday home at a time
You must have another principal place of residence (PPR) in Australia (although you don’t need to own the PPR)
The property must be used as a holiday home. The SRO will consider:
- Location of the property
- Distance between PPR and holiday home
- Nature and frequency of use of the land
Who can use the property of an individual landowner?
The owner and their “close family” must have used and occupied the property as a holiday home for at least 28 days during the year
Close family of the landowner is:
- Spouse or domestic partner
- Lineal ancestor or descendant of the person or their spouse
- Sibling, or child of a sibling, or the person or their spouse
What are the criteria for trusts and companies?
The entity must have owned the property as at 28 November 2023.
Trusts and companies acquiring properties after that date cannot apply the exemptions. To avoid VRLT the properties would have to be leased or used on short term tenancy for at least 6 months of the year.
Discretionary trusts:
- “Specified beneficiary” and their ‘relatives’ (see above)
- Definitely not just someone who is under a general class of beneficiaries
- Beware of resettlements if adding to or changing the “specified” beneficiaries in some form
Companies & Unit Trusts:
- At least 50% of shares/units must be owned by one or more natural persons who use other land in Vic as their PPR during the year
- That natural person or their ‘relative’ (see above) uses the property as a holiday home for 28 days or more
SMSFs
- Treated like trusts, but note SIS prohibitions for use of residential property by members
Further guidance is still needed for companies in the circumstances of where there are different classes of shares with different rights. The Government has clarified during parliamentary debate that the PPR requirement would be satisfied by a natural person or persons who hold at least 50% of the shares directly or indirectly, allowing tracing through interposed entities.
What evidence will be required?
There is no guidance currently available on what evidence will be sufficient to prove that a holiday home exemption applies. It is sensible to think that the following will count as strong evidence:
- Logbook to track use of the property
- Phone records (note things like Google timeline and/or phone tower records will exist and could be requested or accessed by the SRO)
- Bank records of purchases in the local area
- Utility consumption
Income tax consequences
For income tax purposes, deductions are available for assets that are held to produce assessable income during the year, with a pro-rata reduction for private use. An asset can be held to produce assessable income where it is genuinely available for rent during the year, even if it is not used and occupied for the whole year.
The holiday home exemption (if available) will need to be relied on to get a VRLT exemption for a property that is available for rent and held to produce assessable income for the whole year for income tax purposes, but is not actually tenanted and used for 6 months during the year.
This comes with income tax consequences as the use to qualify for a holiday home exemption will be private use and require most rental deductions to be apportioned accordingly.
For example, a property is held and available for rent all year in a holiday location. It is only tenanted for 4 months of the year. The owner spends 37 days of the year at the property. The tax deductible costs for the year total $18,000. In this case:
- The property is exempt from VRLT (assuming there is another PPR and no other holiday house is claimed by the owner)
- The tax deductible costs are reduced to $16,175 ($18,000-[18,000 / 365 x 37])
